Special-Purpose Money for a Limited Globalization

According to Rodrik’s (2012) ‘trilemma’, we can have only two of the following at any one time: hyperglobalization, the nation state, and democratic politics (Rodrik, 2012). Given the destructive forces of hyperglobalization – environmental degradation, homogenization of culture, and financial instability (e.g Hornborg, 2017a) – and the undesirability of any arrangement that precludes the nation state and democracy, the most sensible option in the trilemma is to limit hyperglobalization (Rodrik, 2012). This presents a significant policy challenge: how can we limit globalization in a manner that preserves its beneficial aspects while countering its destructive forces? Drawing primarily on Hornborg’s (2017a) analysis of Polanyi’s (1957, 1968, 1977) distinction between general-purpose and special-purpose money, I argue that the prevalence of the former issued as interest-bearing loans is a key enabler of hyperglobalization and a perpetual search for growth. Consequently, I propose a special-purpose currency intended to empower local communities and foster a socio-ecological transformation.

General-purpose money circulates in market societies and can be exchanged for any available goods and services (Polanyi, 1957, 1968, 1977). As social and material life become increasingly commodified on a global scale, almost anything anywhere can be exchanged for money. Thus, general-purpose money allows for claims on land and labour thousands of miles away, closely linking it to the destructive forces of hyperglobalization (Hornborg, 2017a). Arguably, however, the interest on general-purpose money drives the desire for accumulation (Svartzman et al., in press), largely occurring through exploitation of global differences in the prices of labour and land, which itself implies long-distance trade, environmental and economic inequalities, and ‘consumer blindness’ (e.g. Hornborg, 2017a). While most ecological economists’ analysis of a monetary growth imperative due to interest (e.g. Douthwaite, 2000) is based on a flawed understanding of the monetary system (as shown, for example, by Cahen-Fourot and Lavoie, 2016), the progressive generalization of interest-bearing debt money “is intricately related to the legitimization of money in its function as a store of value, which in turn increases the propensities to save and accumulate that are incompatible with a non-growing economy” (Svartzman et al., in press). Thus, interest assists in driving the search for endless accumulation while general-purpose money ensures that this search take place on a global scale across all kinds of commodities.

Special-purpose money, according to Polanyi (1957, 1968, 1977), was circulated in non-market societies and was exchangeable for a limited range of goods and services, delineating different spheres of value and limiting commensurability. Today, there exist many complementary currencies, which can be considered forms of special-purpose money, but they comprise a very small portion of economic activity and generally encounter difficulties remaining in circulation and driving the kind of socio-ecological transformation they may be capable of (e.g. Eisenstein, 2011). Yet countering the destructive forces of globalization requires a degree of economic relocalization, which can be promoted by encoding spatial distinctions in a complementary currency system (Hornborg, 2017b). For example, Hornborg (2017b: 627) has proposed a scheme by which “each country establishes a complementary currency for local use only, which is distributed to all its residents as a basic income.” Ultimately, such a strategy could empower local communities through the protection of their values and basic needs from the rapid and unstable capital flows of global trade and finance (Hornborg, 2017b). While some global flows of goods and capital may be socially desirable, they should not govern the basic welfare of local communities and the spaces they inhabit.

To maximise the transformational impact of such a local currency, it should bear negative interest rates. This is known as demurrage, a concept coined by Gesell (1916) and supported by Keynes (2013 [1936]: 234). Imposing a cost on money over time strips it of its function as a store of value, making accumulation burdensome and encouraging long-termism with regard to investment and the environment (Eisenstein, 2011; Lietaer and Dunne, 2013). A relatively recent example of this occurred in Wörgl, Austria, in 1932. In order for a unit of currency to remain lawfully valid, it required a monthly stamp costing 1% of the currency’s face value. During the 13-month period that the currency was in circulation – before being outlawed by the Austrian Central Bank – Wörgl flourished, as numerous public works projects were completed, long-term investments were made and forests replanted (Lietaer and Dunne 2013: 177). Thus, Hornborg’s (2017b) proposal for a national complementary currency for local use could also apply the principle of demurrage and curb not only the destructive effects of hyperglobalization but also the closely connected drive to accumulate that is inherent in the logic of general-purpose interest-bearing money.

A reason that many complementary currencies have failed to stimulate local economies long-term, however, is precisely that hyperglobalization has deeply eroded local infrastructure of production in the first place (Eisenstein, 2011). That said, these complementary currencies have had at least three main flaws in their design: i) they are usually not issued by government or accepted as payment for taxes; rather, they are often opposed by government and disappear over time (Lietaer and Dunne, 2013); ii) they are often convertible to conventional currency, meaning that they do not properly limit commensurability (Kalinowski, 2014) and as such are not truly ‘special-purpose’ monies; and iii), they are not demurrage currencies. If the state were to issue a non-convertible demurrage complementary currency through a basic income, a job guarantee or some other mechanism, the likelihood that the currency would contribute to a transformation of communities involving the re-building of local infrastructure of production seems much more likely.

In order to maximise its impact, an essential feature of such a currency would be its acceptance as payment for taxes. This drives a constant demand for the currency, ensuring that it remains in circulation (Forstater, 2018). Furthermore, as the currency would be intended to stimulate local economies and push back against hyperglobalization, its use should be limited to the purchase of local services and of goods produced within a given distance (which would vary depending on the region) of the point of sale (Hornborg 2017b). Lastly, in order to make the demurrage feature more convenient for citizens than the Wörgl example above, the complementary currency could be issued and managed digitally, which would also allow for enforcement of its non-convertibility and its use for local goods and services.

Such a special-purpose currency could assist in striking the delicate balance between preserving the good of globalization – especially the international nature of “ideas, knowledge, science, hospitality, travel” (Keynes, 1933) – while countering the destructive forces of hyperglobalization and ensuring that “goods be homespun whenever it is reasonably and conveniently possible” (Keynes, 1933). As Keynes (1933: 758) argued, “disembarrassing a country of its entanglements (…) should not be a matter of tearing up roots but of slowly training a plant to grow in a different direction”. While many kinds of monetary (and other) transformations are necessary for post-growth and relocalized economies, a digital demurrage currency that is non-convertible, accepted for tax payments, usable only for local goods and services, and issued/monitored by government authorities is one modest way in which we might be able to slowly alter the direction of globalization.

David Barmes – Economist, Positive Money

David is carrying out Positive Money’s latest research on Escaping Growth Dependency. He holds a bachelor’s degree in Economics and Psychology from McGill University and is currently completing a master’s degree in Socio-Ecological Economics & Policy at the Vienna University of Economics and Business. His research mostly falls within the field of ecological macroeconomics, where he draws primarily on approaches and insights from Ecological, Post-Keynesian, and Institutionalist Economics. Ultimately, much of his work is aimed at transforming money and finance for a post-growth economy. David is a member of the International Society for Ecological Economics and the Steering Committee of the Canadian Progressive Economics Forum.

Hornborg, A., 2017b. How to turn an ocean liner: a proposal for voluntary degrowth by redesigning money for sustainability, justice, and resilience. Journal of Political Ecology 24, 623–632. https://doi.org/10.2458/v24i1.20900

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